The Question To Kick Off 2006 Are We Topish In Housing

By Michael Lewis
The year begins with no clearer sign of where the housing boom is headed than we had at the outset of 2005. Everyone is asking everyone else when demand is going to begin falling and how fast.

"Are we top-ish?" I was asked at dinner last week – a normal question, except the questioner was an expert and he was asking the newspaperman.

That tells it all – the experts are fishing for signs wherever they find them.

The expert didn’t ask the out-of-towner beside him who’d just helped finance several local condo projects. Maybe that’s because the financier had also just asked me about the market.

In turn, I’d told them of a financial whiz who for years had been telling me the bubble was due to burst. Now, that expert is talking about holding onto more units in his own developments because he sees values going only one way – up. Thus doth the pessimist turn.

That leaves us all reading tealeaves to draw what meaning we can.

Leaf one: Prices of Miami resale homes rose 31% in November, exactly the average for the state, but Miami sales fell 25% while statewide sales rose 1%. Fort Lauderdale followed the pattern, with prices up 29% and sales down 21%.

What does that leaf show us? Ron Shuffield, who grew Esslinger Wooten Maxwell Realtors into a local powerhouse, says we have to discount patterns in the fourth-quarter sales because the impact of hurricanes makes historic comparisons meaningless.

Still, a lot more single-family homes seem to be going on the resale block than are moving off it, putting buyers onto a more even footing with sellers, who have been calling the shots since the market began to sizzle.

The figures show something else: The median resale price was $381,600 in a county where the median household income was $37,000. Those numbers indicate that the average Miamian has precious little chance to own a home if he doesn’t already.

So in the midst of a boom, the people who make this community tick are forced out of the game. How many non-local buyers will we find for the 100,000-plus units being built or in the pipeline countywide? If most buyers aren’t outsiders, most of what’s being built will wind up as rentals or vacant.

Leaf two: An unbuilt 318-unit luxury condo complex that was 75% sold is returning deposits and closing shop. Mission Bell Park’s buyers are getting their money back with interest.

This doesn’t show a crumbling market – the developer, the Codina Group, simply didn’t get construction approvals in time to meet agreements with buyers. It says nothing about the strength or ability of the developer, the quality of the project or the condo market.

But it does raise a question: Will all those condos that have been resold pre-construction at rising prices actually get built? As material and labor costs soar, will developers find that construction would leave them in the red? Do they have the wherewithal and backbone to finish the job?

Leaf three: As interest rates rise, will condo speculators with variable-rate mortgages be able to hold on once they close contracts if demand dips while more and more condos are built?

I said "if" demand dips. Experts say "when." They assume some prices will fall. The questions are whether this will be universal or confined to less-desirable locations, whether it will be a correction or a nosedive (most experts don’t see a precipitous drop) and, most important, when the market will shift from positive to negative.

Leaf four: How will the community affect prices and demand?

The Northeasterner who helps developers find financing told me he thinks we’re building topflight residences, greatly enhancing Miami-Dade’s attractiveness globally. On the other side of the coin, he questions whether our transportation network will support our lifestyle. Will we be able to get from here to there?

Another bellwether is leadership. Miami city government is light years ahead of the 1990s. County government, though much reviled, has avoided recent scandals and often functions well, something we couldn’t have said with a straight face a few years back.

How does that affect housing demand? Think about where you’d want to live. It doesn’t depend on just sun and sand, does it? A few years ago, some quite sane business folks told me they’d never have a business within Miami city limits. Nobody says that now.

Brew the tea leaves together. We see a great community, great housing rising but far too much of a good thing, interest changes that will imperil speculative buyers, costs squeezing developers, too little housing for Miamians and too much being built for a market that’s less stable because it’s not here 365 days a year – or even 180.